Parliament is currently debating an indirect counterproposal to the so-called “daycare initiative.” At the heart of this proposal are flat-rate childcare allowances: parents who place their child in daycare one day a week would receive CHF 100 per month — up to CHF 500 for full-time care. This benefit would be granted regardless of the parents’ employment level, as foreseen in the current draft.
This new social benefit is expected to cost around CHF 700 million per annum. Its stated aim is to increase labor force participation, especially amongst women. But how realistic is this promise?
Limited Impact Despite High Expectations
While some international studies show a positive correlation between spending on early years care and getting mothers into the workforce, the effects are far smaller than commonly assumed. A 10% reduction in childcare costs only leads to a 0.5% to 2.5% increase in employment. Studies done in Switzerland arrive at similar conclusions.
How small these effects turn out to be in practice can be illustrated by one simple example: If childcare costs drop by 500 francs per month – roughly 20% of the full-time cost of 2,500 francs – then, according to the studies mentioned, mothers’ employment would increase by just 1 to 5%. Given an average employment level of 18 hours a week (in two-parent households), this corresponds to a rise of only 11 to 54 minutes per week.
Moreover, the findings suggest that these effects primarily reflect an increase in working hours among mothers who are already in employment, while the decision to enter the workforce is only weakly affected or not at all.
Why behaviour barely changes
When external childcare becomes cheaper, work becomes more worthwhile for secondary earners, since they have more of their salary left at the end of the month. That’s the usual argument. But it’s not that simple.
If lower childcare costs leave families with more disposable income, some parents may choose to give themselves more leisure time. In such cases, they deliberately opt not to work more, but to spend additional time with their family instead. Economists refer to this as an income effect: more disposable income doesn’t necessarily lead to more paid employment – it could just as easily result in less. Therefore, the sought-after incentive effect is partially offset.
In addition to financial considerations, other factors play a central role as well: More than half of mothers not in employment or who only work part-time do not make greater use of external childcare because they prefer to look after their own children. At the same time, social norms and traditional gender roles are likely still having an impact – often leading women to forgo increasing their participation in the workforce, regardless of the economic incentives.
Why the subsidy is still expensive
Even if many parents don’t change their behavior in response to lower childcare costs, the money is still flowing – and to a large number of households. This leads to significant windfall effects:
- Families who already send their children to daycare receive additional money – even though they don’t change their behaviour
- Households that previously arranged childcare privately switch to institutional care
- Even parents who don’t use daycare for work-related reasons benefit
This leads to high costs without achieving the political goal of increasing workforce participation. Additionally, the roughly 700 million francs per annum have to be raised somehow. Most likely, this will be achieved through additional payroll taxes – which in turn weaken the incentives to work.
Distributed indiscriminately – socially questionable
Therefore, not only do flat-rate childcare subsidies have only barely noticeable effects on the labour market, but their distributional impact is also questionable: people who do not have children or families who choose other forms of childcare end up financing those who do send their children to daycare.
Daycare centres are disproportionately used by high-income families: while around 40% of children from the highest income groups go to institutional childcare centres, the share in the lowest income quintile is below 20%. This points to a certain bottom-to-top redistribution —an effect which is unlikely to have been the political intent.
